Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery. Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”. …Germany’s economy is enjoying an industry-led growth spurt, with engineers rehiring workers and returning production almost to pre-crisis levels. The stronger-than-expected growth and falls in unemployment were making it significantly easier for Germany to reduce its public sector deficit. …the package “would differ fundamentally from earlier consolidation efforts”, avoiding “growth-hindering tax increases”. …Overall government spending is seen as falling 3.8 per cent next year, with smaller reductions in subsequent years before federal elections in 2013.
I Don’t Think Merkel is the new Reagan, but I May Change My Mind if This Is True
July 6, 2010 by Dan Mitchell
I’ve been very dismissive of supposed European “austerity” initiatives, in part because the term seems to describe politicians who want tax-financed government spending rather than Keynesian-style deficit-financed government spending. But what really matters is reducing the burden of government spending, regardless of how those outlays are financed. But if this Financial Times report is true and Germany reduces total government spending next year by 3.8 percent, that would be a significant achievement. Indeed, the United States has not seen a one-year-to-the-next reduction in the burden of spending since the mid-1960s. I hope this is true and my pessimism is unwarranted, but I’m still a skeptic. I may be wrong, but I wouldn’t be surprised to discover that the 3.8 percent cut is based on phony US-style budget accounting (a spending increase magically becomes a spending cut if the increase is not as big as politicians want) or some sort of budget shell game (like Obama’s budget freeze, which exempted the vast majority of the budget).